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Preview of the case o Failed past strategies  Acquisition of Salomon SA y Diversified Adidas beyond footwear and apparel and into ski equipment, golf clubs, bicycle components, and winter sports apparel y Declined attractiveness of winter sports industry y Failed to integrate successfully between Adidas footwear and apparel business and Salomon s business units y Did not have expertise in manufacturing sports equipment since its apparel and footwear were produced by contract manufacturers y Let to a net loss of $164 million for Adidas-Salomon during 1998
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Successful past strategies  Innovation y The company s dominance in the athletic footwear industry was gained through strong innovations from 1950 to 1970  Louis-Dreyfus y Cutting costs y Launching new models y Signing endorsements contracts with popular athletes  Hainer y Cut costs y introduced new apparels and footwear products y opened extended retail distribution to company owned stores  Acquisition of Reebok y Helped restructuring the business line primarily on athletic footwear and apparel and golf equipment y Increased the company s revenue from $5.8 billion to $10.1 billion in 2006 Current corporate strategy  Extending its leadership in product design and innovation  Creating a differentiated image for the products offered by each of its business units y Focus on brand building activities partnership with sporting events and endorsing contracts with athletes. y Providing retailers with superior customer service, including on time deliveries  Expanding controlled retail space - mono-branded stores, shop-in-shop locations, factory outlet stores, team apparel stores, and e-commerce sites.  Achieving effectiveness of its global supply chain processes and activities y Cutting costs by outsourcing manufacturing y Increasing product design-to-market cycle times

Some recommendations Adidas footwear and apparel

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This is the main business unit the company is based on and contributes more to the sales revenue than other units. It consists of two categories the Adidas Sports Performance group and the Sport Style product line The worldwide sale of the product line totaled nearly $125 billion There were indications that the annual growth rate for global athletic footwear and apparel industry had slowed from 6.8% in 2005 to 3.3% in 2007. The company s Sport Style streetwear and lifestyle fashion group represented a small fraction of Adidas s overall footwear and apparel sales. Adidas should continue its current strategy product differentiation through innovations and product designs, endorsement by individual athletes, and cost reduction by efficiently managing supply chain. Adidas should foster investments in Sport Style streetwear and life style fashion by engaging in more collaborations with clothing manufacturers. The reason for this strategic move includes; o This segment of business offered high profit margin because of small R&D budget needed to design such items. o Market for sports lifestyle apparel and footwear was growing at a faster rate than the market for actual sports product. o Such strategic alliances with clothing manufacturers can help Adidas get into growing markets and gain inside knowledge about unfamiliar markets and cultures Increase investment in e-commerce sites for Adidas footwear and apparel because it can capitalize on potential growth of online retailing.

Adidas footwear and apparel, which consists of two categories Sport Performance group and Sport Style product line, is the main business unit the company is based on, and which contributes more to the sales revenue of the company than other business units. The worldwide sale of the product line totaled nearly $125 billion in 2007. The company s main strategic formulae in footwear and apparel appears to be focusing on product design and innovations, sponsoring of major sporting events, and endorsements by individual athletes. Although there seemed to be no reasons to abandon current strategies and adopt new strategies in this area, there are some changes in the market and industry which call for reactions to amend strategies as needed. There are indications that the annual growth rate for global athletic footwear and apparel industry had slowed from 6.8% in 2005 to 3.3% in 2007, and the company s Sport Style streetwear and lifestyle fashion group represented a small fraction of Adidas s overall footwear and apparel sales, although there is potential for high growth in this category. It could be recommended that Adidas should continue its current strategy product differentiation through innovations and product designs, endorsement by individual athletes, and cost reduction by efficiently managing supply chain to maintain the market dominance. To capitalize on the growth potential of Sport Style segment, Adidas should foster investments in Sport Style streetwear and life style fashion by engaging in more collaborations with clothing manufacturers in various parts of the world. The reasons for such a strategic move includes the fact that this segment of business offered high profit margin because of small R&D budget needed to design such items, and market for sports lifestyle apparel and footwear was growing at a faster rate than the market for actual sports product. Moreover, forming strategic alliances can be advantageous to Adidas in several ways. Firstly such strategic alliances with clothing manufacturers can help Adidas get into growing markets and gain inside knowledge about unfamiliar markets and cultures. Secondly, it could help the company utilize the market opportunities in growing markets such as Eastern Europe, South and Central Asia, and China.

Adidas Footwear and Apparel

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It consists of two categories o the Adidas Sports Performance group and o the Sport Style product line The worldwide sale of the product line totaled nearly $125 billion Problem o the annual growth rate for global athletic footwear and apparel industry had slowed from 6.8% in 2005 to 3.3% in 2007 o The company s Sport Style streetwear and lifestyle fashion group represented a small fraction of Adidas s overall footwear and apparel sales despite the potential for high growth in this category. Recommendation o Innovation and product differentiation  Adidas should continue its current strategy product differentiation through innovations and product designs, endorsement by individual athle tes, and cost reduction by efficiently managing supply chain. o Strategic alliances  Adidas should foster investments in Sport Style streetwear and life style fashion by engaging in more collaborations with clothing manufacturers. Reasons o High profit margin  small R&D budget needed to design such items o Market growth potential  Market for sports lifestyle apparel and footwear was growing at a faster rate than the market for actual sports products. o Benefits from collaborations  Entry into growing markets and  gain inside knowledge about unfamiliar markets and cultures

2007 Adidas AG Gross Profit margin Operating margin Adidas footwear & Apparel Gross profit margin Operating margin 47.25% 12.90% 47.40% 9.21%

2006

2003

2002

44.58% 8.73%

44.90% 7.81%

43.21% 7.31%

46.17% 11.90%